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Chapter 25: Q.21 (page 676)

What traits characterize a “conservative” central banker?

Short Answer

Expert verified

Committed to maintaining low and steady inflation is the trait of conservative central banker.

Step by step solution

01

Content Introduction

The stability bias of discretionary monetary policy is solved by a conservative central banker who places more emphasis on inflation stabilization than the social planner. The welfare costs of departing from the ideal level of monetary conservatism are asymmetric, as shown in this note.

02

Content Explanation

A central banker who is conservative is someone who has a great hatred for inflation. In other words, a conservative central banker would be appointed to project a strong anti-inflation stance and be devoted to maintaining low and stable inflation.

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Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database, and find data on the core PCE price index (PCEPILFE) and the spot price of a barrel of oil (WTISPLC). For both variables, convert the units setting to "Percent Change from Year Ago, " and download the data from 1960 to the most recent available data.

a. Identify periods in which oil price inflation is 80%or higher.

b. In the periods identified in part (a), how many months was oil price inflation 80% or higher? What was the average core inflation rate during each of those episodes?

c. Based on your answers to parts (a) and (b) above, what can you conclude about the credibility of more recent monetary policy compared to its credibility in the earlier periods?

In Japan, the government and central bank have enacted policies recently to raise inflation permanently from persistently low levels, however inflation continues to remain near zero. How, if at all, might credibility of the central bank explain the low inflation persistence?

Suppose two countries have identical aggregate demand curves and potential levels of output, and γis the same in both countries. Assume that in 2019 , both countries are hit with the same negative supply shock. Given the table of values below for inflation in each country, what can you say, if anything, about the credibility of each country's central bank? Explain your answer.

Many economists are worried that a high level of budget deficits may lead to inflationary monetary policies in the future. Could these budget deficits have an effect on the current rate of inflation?

“The Lucas critique by itself casts doubt on the ability of discretionary stabilization policy to be beneficial.” Is this statement true, false, or uncertain? Explain your answer
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